International efforts to ward off trade protectionism will be a key topic at the Group of 20 (G20) summit later this year, as such practices have been on the rise.
Earlier this week, the U.S. International Trade Commission announced that it would launch an investigation into complaints of alleged price fixing, stealing of trade secrets and misrepresentations of the origin of exports to the United States by Chinese steel companies.
Such a decision is inherently in the vein of trade protectionism, and it allows local firms to abuse domestic trade rules to keep out foreign competitors. In this case, the U.S. Steel Corporation is actually seeking to bar nearly all imports from China's largest steelmakers.
The allegations are based on fundamentally arbitrary grounds because the prices of steel exports to the United States can only be based on market supply and demand. The current situation is the result of a supply glut in the global steel market that has driven prices down to lows.
It is known that Chinese companies are competitive in certain segments of the steel market, largely a result of the comparative advantages. International trade is in essence mutually beneficial international division of labor based on comparative advantages.
Under such division of labor, it is natural for U.S. firms to be engaged in certain sectors they are good at, while Chinese firms are engaged in others.
It benefits all, though comparative advantages may change over time as an economy develops along a different path, which could mean a period of painful adjustment for some companies.
The United States has notoriously practiced protectionism under various pretexts like allegations of price fixing or wrongheaded concerns over national security.
A report by Simon Evenett, professor of international trade and economic development at the University of St. Gallen, Switzerland, found that the United States was among four countries that have implemented the highest number of protectionist measures among the G20 economies.
Even top Chinese firms like Huawei have been victims of such moves.
The latest steel industry case comes at a time of sluggish global growth that has put pressure on steel firms with overcapacity.
Such moves are by no means beneficial. While it will definitely harm Chinese steel makers, it will also harm the interests of U.S. buyers as they will have to pay higher prices. U.S. steel firms will eventually have to face up to the challenges too, and it is inevitable that they will drop out of the race in the long run if they become dependent on protectionism to survive. The United States will also lose the chance to address its deeper systemic issues.
It is also possible for the U.S. move to cause counter measures and trade friction, which will harm industries on both sides.
Trade protectionism has been on the rise during a time when the global economy is performing poorly. European countries have put on a bizarre show of deciding whether to deliver on their promises to grant China market economy status. Furthermore, experts say the use of the Trans-Pacific Partnership by the United States as a tool to keep China out of global trade agreements runs counter to the essence of international trade.
Trade protectionism must be fought and the G20 should take the lead in doing so, be it pushing for the World Trade Organization trade facilitation agreement, reducing remaining tariff and non-tariff barriers or negotiating free trade agreements for certain market segments, like that of environmental goods.
Only then can trade across the globe flow freely and fairly as it should.
